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Best Small Business Loans July 2025
Business loans are designed to provide the funding your small business needs. Taking time to compare rates, features, pros and cons will help you find the best small business loan for you.
A small business loan can help get a new venture off the ground, take your business to the next level or cover a cash-flow issue. But finding the right small business loan and lender for you is a must. Thankfully, our guide to business loans for smaller businesses is here to help.
What is a small business loan?
A small business loan is a form of finance that can be used to help support and expand your small business.
As with personal loans, business loans involve borrowing a sum of money and paying it back, with interest.
One of the most important differences between personal loans and business loans is that with a personal loan, you will be personally liable for repaying the amount you have borrowed.
With a business loan, as long as the appropriate company structure is in place, that responsibility falls to the business instead. This will not be the case, however, if you are a sole trader, or you have secured your business loan with a personal guarantee.
You can also typically borrow more through a business loan. What’s more, the interest payments on your business loan may be tax deductible unlike payments on a personal loan.
» MORE: What is a business loan?
Can start up businesses get business loans?
Newer and younger businesses just starting out can get business loans. Some lenders can be wary of lending money to new businesses, as start ups don’t have much or any trading history to go off, and the business may be too new to have a strong business credit score. All this means lenders can view start ups as a riskier bet than a more established business with a proven track record of paying back its debts.
However, while some lenders make it a condition that a business must have been trading for a certain amount of time before being considered for a loan, there are plenty of business loan providers that are willing to lend to new businesses.
» MORE: Start up business loans
Small business loan pros and cons
There are several advantages to taking out a business loan, but some potential disadvantages to be aware of too.
Advantages of business loans
- Using a business loan to fund the growth of your organisation means you’ll be able to retain ownership of the business, rather than giving up equity.
- Business loans can help with cash flow, covering temporary and unanticipated shortfalls and allowing your business to pounce on unexpected opportunities for growth.
- So long as you repay your loan in full and on time, taking out a business loan could boost your business credit score. And the better your business credit score, the easier you’ll find it to access finance on favourable terms down the line.
Disadvantages of business loans
- Business loans must be repaid with interest – unlike small business grants, for example, which typically don’t have to be repaid. The interest on a business loan means there will always be a cost of borrowing, and your business will always pay back more than it borrowed.
- You may have to provide collateral – like personal or business property – before a lender will let you access a business loan.
- You may be required to provide a personal guarantee before you can access loan products from certain providers.
- If you fail to meet the repayment terms of a loan, your business credit score may suffer. This may make it harder to secure business loans on favourable terms in the future.
- If you default on your business loan, you may face additional charges.
» MORE: Advantages and disadvantages of small business loans
Small business loan lender reviews
For an in-depth look at some of the best business lenders in the UK, take a look at our reviews.
How to apply for a small business loan
Applying for a small business loan may be easier than you think. Just follow the steps below.
- Decide how much you want to borrow and for how long. Once you’ve decided a business loan is the right option for you, it is important to consider the balance between what you can afford and what you need to help your business.
- Compare business loans and lenders to find the right fit for your small business. Shopping around and comparing business loans is an important step. Take time to research and compare the various terms, conditions, and requirements of business lenders to make sure the loan you end up with suits the needs of your small business.
- Submit your application and all relevant documents. This may include how long you have been trading, details about your finances, and what you want the money for.
- Wait to hear back. It can take a couple of hours to a matter of weeks to hear back about your business loan application, depending on your financial circumstances and the lender in question.
» MORE: How to get a business loan
Who is eligible for a business loan?
In theory, anyone who owns a business is eligible for a business loan, so sole traders, small and medium-sized enterprises (SMEs) and large businesses may all be eligible to apply for a business loan in the UK. However, lenders will set their own criteria and determine your eligibility for a loan based on information such as:
- how long your business has been trading
- whether your business is based in the UK
- your annual turnover
- your business and personal credit history
» MORE: How do business loans work?
Types of business loans for small businesses
There are several types of business loans available to smaller businesses, but two of the most popular options are:
Unsecured business loans
Unsecured business loans do not require the use of company assets as security, though you may be required to provide a personal guarantee. These types of loans tend to have higher interest rates because there is a greater risk of the lender losing money if you can’t pay off what you owe. Unsecured business loans also require a good financial history and credit rating as evidence that the business will be able to repay the loan as there is no other guarantee in place.
Secured business loans
Secured business loans require that you put down an asset such as property as security. Secured loans often come with lower interest rates than unsecured loans as they represent less risk for the lender. They may also give you access to a larger loan amount over a longer term. However, secured loans come with the added risk that you could lose the asset you put up as security if you miss the payments.
» MORE: Types of business loans
What is the easiest small business loan to get?
An unsecured business loan tends to be the easiest type of business loan to get. This type of loan may need a business owner to provide a personal guarantee, but doesn’t usually require any collateral or security for the loan.
How to compare small business loans
There are a number of factors to bear in mind to help you compare business loans. It’s important to consider which loan is going to be right for your small business. Factors to compare include the interest rate on the loan, the amount you can borrow, and any fees for taking out the loan.
Before you apply for a business loan for your small business, you should consider whether it is the best fit for you and your organisation. There are a few key questions you can ask yourself to help you compare business loan providers and ultimately decide whether a business loan could be right for your small business.
- How much do I want to borrow?
- When do I need to repay the loan?
- How much can I afford to repay each month?
- Am I struggling with unpaid invoices?
- Do I hold equity in a property?
- Do I need the loan to buy a specific valuable asset?
- What’s my personal and business credit rating like?
- How long has my business been operating?
- Do I need a lump sum?
» MORE: Find business loans to suit you
Tips for making the most out of your business loan
Once you have secured a business loan for your small business, you need to make sure you use it effectively. Below are some tips on how you can maximise the benefit of your business loan:
- Create tangible targets: To ensure you use your funds correctly and have something to show for it on the other side, it is wise to create specific goals you want to achieve with the money you receive through the loan. Ideally, you would come up with a plan before you apply for finance.
- Detail exactly what you will spend the money on: Once you have an idea of what you want to achieve, set out exactly what the loan will be spent on, over a concrete time frame. This will help lay a path to achieving your targets.
- Consider a separate bank account: Depending on what you intend the loan to be used for, you may want to consider opening a dedicated business bank account for the funds. This will make it easier for you to review your finances and see how much you have left at any given moment.
- Regularly review your finances: The funds being in your account is only the beginning of managing your loan. Regularly review how much you have left, what it has been spent on, and how that compares to the plan you came up with before you applied. It won’t always be possible to keep on target; unexpected expenses are part and parcel of running a business. However, tracking your spending will mean you hopefully won’t veer off course.
» MORE: Try our business loan calculator
Alternatives to small business loans
There are many funding alternatives to consider if you’re unsure about whether a business loan is the right option for your small business. Some of these include:
Some banks offer access to a business overdraft. This is a short-term line of credit, which may be able to provide your business with greater financial flexibility. If you are faced with an unexpected cost, for example, then an overdraft could take pressure off your cash flow in the short-term.
Just be warned that your business will be charged interest on the amount you are overdrawn, and you may also be charged a fee for using the overdraft. Your bank can also demand that you repay the overdraft at any time.
If you ask your bank, you may be able to increase your overdraft amount.
Similarly to business overdrafts, business credit cards can provide greater financial flexibility for a small business. A key advantage of business credit cards is that they give you the option to spread the cost of your purchases, which can help with cash flow.
There are a few different types of business credit cards to choose from, including rewards business credit cards, foreign use business credit cards, and balance transfer business credit cards. You should shop around and look for the card best suited to your business needs.
Business credit cards can also help to build your business credit score, and having a strong business credit score can help your business access finance on more favourable terms down the line.
However, if you do not pay off your business credit card in full each month, you will be charged interest, making the cost of borrowing greater in the long term.
Merchant cash advances are a funding option for businesses that take card payments. Unlike some small business loans or start-up loans, firms can generally access merchant cash advances without needing to provide assets as security.
With a merchant cash advance, a lender will provide your business with an up-front sum of money – to cover a short-term shortfall or cash-flow issue, for example.
A percentage of your business card sales income will then be deducted daily, weekly, or monthly and be sent to the lender until the initial loan is repaid. Be warned that your business will be charged interest for a merchant cash advance and will also have to pay a fee for this service.
Invoice financing is a way of immediately releasing some of the money tied up in your unpaid invoices. Again, this offers your business greater financial flexibility and access to near-immediate capital.
With invoice financing, a lender will use your unpaid invoices as security for a loan, with some loan approvals taking less than 24 hours. This means invoice financing can provide quick access to a portion of the money you are owed by your customers or clients.
There are different types of invoice financing arrangements, including invoice factoring (where the lender takes on the responsibility for managing your sales ledger and collecting payments from your customers) and invoice discounting (where your business keeps control of customer payments).
Make sure you understand all the options available to your business and think about the financing arrangement which is the best fit for your circumstances.
Asset finance is a versatile source of funding, and it could help your small business cover the cost of business-critical assets.
Either through a leasing agreement or a hire purchase arrangement, asset financing can ease the cash-flow pressure on businesses by providing a way of spreading the cost of major equipment acquisitions or upgrades – the kind of spending which would usually put a major dent in your cash flow.
Just bear in mind that fees and interest payments are likely to apply if you use asset finance to finance the cost of buying assets for your small business.
The key difference between a grant and a loan is that a grant usually doesn’t have to be paid back. For this reason, small business grants can be very competitive.
There are many grants available to UK small businesses, some of which are available based on the sector, location, or age of your business.
You may be able to access small business grants specifically for businesses based in England, Northern Ireland, Scotland or Wales, as well as small business grants for women.
Small business grants may come with more stringent requirements or eligibility criteria than small business loans, so make sure you do your research before applying.
It may sound like a slightly unconventional way to get a new business idea off the ground, but a crowdfunding campaign is another option for securing small business funding.
Crowdfunding generally involves securing small amounts of funding from many sources – typically lots of individuals – who might choose to back a business idea in return for rewards, like early product access or equity in your business. Crowdfunding campaigns typically take place online through dedicated websites.
Angel investors are the largest source of investment in UK start ups and small businesses. Angel investors are typically successful or wealthy individuals looking to use their own money to invest in a young business in return for a minority stake.
Think Dragon’s Den: many of the show’s ‘dragons’ are real-life angel investors.
In addition to providing you with seed funding, an angel investor will generally take a hands-on approach to helping you grow your business – for example, by leaning on their own connections or mentoring you on your business journey.
» MORE: How to get start up funding for a new business in the UK
Government small business loans
Although the UK government doesn’t offer small business loans directly, there is an indirect process through which the government seeks to support small and new businesses in the UK.
The British Business Bank is an independent lender founded in 2014 and owned by the Department for Business and Trade. The stated aim of the British Business Bank is to offer an alternative to the business finance market, which can be tough on small and new enterprises.
The British Business Bank runs the Growth Guarantee Scheme, the successor to the Recovery Loans Scheme. This is a funding scheme designed to support UK small businesses as they invest and grow, offering small business loans of up to £2 million, repayable from three months up to six years. These small business loans are 70% backed by a government guarantee.
Small business owners looking for finance can also take advantage of the Bank Referral Scheme. This helps businesses that are struggling to find a lender by ensuring you will be referred to another, more viable lender if a participating bank rejects your business loan application.
Among other schemes, the British Business Bank also offers Start Up Loans for new businesses, with start ups able to borrow between £500 and £25,000, payable over one to five years, at a fixed interest rate of 6% per annum. Support and mentorship is available as part of the loan.
Small business loan FAQs
The best small business loan in any situation will always depend on a business owner’s particular circumstances and needs.
The minimum amount required as a down payment can vary between lenders and business loan types. Some secured business loans may require a large downpayment as security for the loan, while unsecured business loans don’t usually require a downpayment.
Yes, it is possible for new limited companies to get a business loan, though there may be minimum turnover and trading time requirements to meet.
A business loan is a source of finance for companies that need money for a variety of purposes. Below are some of the reasons you may consider getting a business loan.
- Cash flow: A business loan could help improve your business’s cash flow. However, you will need to have a strategic plan in place to overcome future cash-flow issues.
- Business growth: The money you borrow could help your business expand.
- Purchasing power: Business loans can help you buy new equipment, increase inventory or invest in office space.
- Recruitment: Money borrowed through a business loan may be used to invest in recruitment and hire new employees.
» MORE: Why do businesses need finance?
There is no fixed personal or business credit score you need in order to apply for a business loan. However, a strong credit score could increase your chances of success and potentially give you access to lower interest rates, although it isn’t the only factor lenders will consider.
For example, credit reference agency Experian’s business credit score ranges between 0 and 100. The closer your score is to 100, the less of a risk you are likely to be seen as by lenders, and therefore the better your chances are of getting a business loan.
However, bear in mind that your credit score isn’t the only factor that lenders will consider when deciding whether to offer you a business loan.
» MORE: Bad credit business loans
While it is not always a requirement, you may find that many lenders will not consider you for a business loan if you do not also have a business bank account. It can also make the application process simpler if you do.
In general, business bank accounts can make it easier to manage your finances and ensure that there is a clear separation between your personal and business funds. This is especially important when it comes to managing a business loan.
Generally speaking, it can be trickier for new businesses to access traditional business loans.
Lenders may take into account the credit history of the business and may want to see more evidence that the business will be successful and will be able to repay its debt. With a new business, proving this can be a challenge.
Some lenders also require that a business has been trading for a certain length of time – sometimes a year or more – before even considering that business for a loan.However, it is possible to get a business loan for a new company – it may just take a bit more shopping around until you find the right lender. This is where our guide to the best business loans for new businesses might help.
Different lenders will have their own borrowing limits, and some may not have an advertised hard cap on how much they’re willing to lend. In theory, and depending on your business circumstances, some lenders will allow you to borrow multiple millions of pounds with a secured loan.
With unsecured loans, borrowing limits are likely to be lower. With some of the unsecured small business loans in our sample, you could borrow £50,000 or £100,000. Other lenders offer unsecured loans of up to £500,000, depending on the circumstances and profitability of your business.
Using a business loan calculator could help you understand the affordability of business borrowing. Check out NerdWallet’s business loan calculator to get a sense of what size loan your business could afford.
The terms of a small business loan will depend greatly on the lender.
As a rough guide, some lenders may allow you to borrow money with a small business loan for six, seven, or even ten years.
With other lenders, however, borrowing times are much shorter. Some short-term business loans must be repaid within two years or less.
Some lenders allow you to repay your business loan early without incurring any fees.
If you think you’ll be able to repay your business loan early, make sure you look into early repayment fees before applying for finance. Otherwise, you may be caught out by this unexpected cost.
Some lenders offer very quick decisions when you apply for a small business loan.
While other lenders may take longer to approve your application, it’s possible to get a decision from certain small business loan providers in just 24 hours.
If you are the director of a limited company, you are allowed to lend money to your own business. By the same token, directors can also borrow money from their businesses.
There are various rules around director’s loans, which you can read in more detail on the Gov.uk website.
If you lend your company money, the company will not need to pay corporation tax on this sum. However, if you charge interest on any money you lend your company, then the loan will count as both a business expense for your company and a source of personal income for you – meaning you must report it on your self-assessment tax return.
Most forms of business lending are unregulated. However, if the business loan is £25,000 or less, and is for certain business types, such as sole traders, it may be regulated by the Financial Conduct Authority (FCA).
You should research the form of business finance you are interested in, and the lenders involved, to check if they are regulated ahead of applying.
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